TURKMENISTAN AND RUSSIA WORKING OUT GAS BARTER

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000470

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PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 04/13/2019
TAGS: PGOV EPET EINV TX RS
SUBJECT: TURKMENISTAN AND RUSSIA WORKING OUT GAS BARTER
DEAL, AND HAGGLE OVER CASPIAN LITTORAL LINE

Classified By: Charge Richard Miles for reasons 1.4 (b) and (d).


1. (C) SUMMARY: EU TACIS Program Manager, Michael Wilson,
provided some additional detail on April 10 regarding
Turkmenistan's proposal to exchange a substantial portion of
the value of its exported gas to Russia for goods and
services. The deal could be a good one for Turkmenistan, if
officials can negotiate effectively to maximum benefit. It
might be tougher to barter for the construction of the
planned Pri-Kaspiyskiy pipeline, a $1.3 billion dollar effort
on which the two parties have still not come to agreement.
END SUMMARY.


2. (C) Political Officer spoke with longtime resident and
EU TACIS Program Manager, Michael Wilson, on April 10 about
the tempestuous economic relationship between Russia and
Turkmenistan. He said that Gazprom owed Turkmenistan a lot
of money for gas delivered in past months, but had only paid
up just prior to President Berdimuhammedov's official visit
to Moscow in late March so that it wouldn't derail the talks.

MORE ON A BARTER DEAL FOR GAS


3. (C) Wilson said his contacts in Moscow told him that
Deputy Chairman for Economy and Finance Japarov was with the
Turkmen President on his Moscow trip and was the engineer of
an ambitious trade proposal that was presented to Russian
officials. Japarov, whom Wilson said is one of the brighter
economic minds in the Turkmen Government, and his staff had
done risk analysis on the Russian-Turkmen economic
relationship, and had concluded that, given the impact of the
global financial crisis, doing business with Russia was now
"high risk." Given that the two countries have very strong
trade ties and their economies were inextricably linked,
Wilson said that Japarov had become convinced that the best
thing for everyone in these difficult financial times was for
Turkmenistan to offer Russia a barter deal. In exchange for
Turkmen gas, the trade proposal suggested that the Russians
pay for a substantial portion with goods and services instead
of cash.


4. (C) Wilson said the deal will benefit the Turkmen
because it will give them leverage over the price of goods
and services and guarantee a level of trade with Russia, even
during the financial crisis. He said the Russians had
accepted the offer, adding that an agreement is likely in the
early stages, although details remain to be worked out. The
Turkmen could potentially barter in this fashion for
everything from construction of the Pri-Kaspiyskiy (Littoral)
pipeline to consumer products to the delivery of KAMAZ
trucks, he said.

CASPIAN LITTORAL PIPELINE SOURCE OF DISAGREEMENT


5. (C) Wilson also offered some interesting details
regarding the status of the Pri-Kaspiyskiy pipeline. He said
the pipeline project, which would stretch from Turkmenistan
through Kazakhstan into Russia, had been estimated to cost at
least $1.3 billion to build. He said that although the three
parties had not been able to agree on the terms of a
feasibility study, Russia had ordered a study independently.
He added that the Turkmen do not want to pay for the
pipeline's construction on their territory, and would prefer
to have the Russians build it via the gas barter agreement.
One of the many sticking points that have prevented the
project from getting off the ground, however, is
Turkmenistan's insistence that the Pri-Kaspiyskiy be limited
to a 20 bcm per year capacity, while Russia wants the
pipeline to move 30 bcm per year.

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COLLISION OF STRATEGIES


6. (C) Wilson said that Russia's goals with the
Pri-Kaspiyskiy are two-fold: to minimize the transit
countries between Turkmenistan and Russia by cutting out
Uzbekistan, and to prevent a supply of Turkmen gas from being
available for an eventual Trans-Caspian/Nabucco project. He
said the Turkmen are aware of this, and are limiting the
quantity dedicated to the Pri-Kaspiyskiy so that there is
sufficient gas available to fill a Trans-Caspian line. The
Turkmen Government has developed a balanced strategy
regarding how much gas goes in what direction, he said. The
Turkmen want to limit the total amount of gas going to Russia
to 70 bcm per year, and envision a 70 bcm limit to China as
well in the longer term.


7. (C) COMMENT: Wilson's information meshes with other
reports we have heard regarding these bilateral economic
issues. The barter deal could be a good thing for
Turkmenistan, if officials can negotiate for the maximum in
return for Turkmen gas. It seems less doubtful, however,
that the Russians would accept a barter deal anytime soon
that would put the cost of building the more than $1 billion
Pri-Kaspiyskiy pipeline squarely in their corner --
regardless of whether there is a political desire to do so.
END COMMENT.
MILES